Use the Information Below to Answer the Following Questions) $\quad$

question 24

Multiple Choice

Use the information below to answer the following questions) . Below is a spreadsheet for Trance Electronics. $\begin{array}{|l|l|l|l|l|l|l|}\hline & {\mathrm{A}} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} & \mathrm{F} \\\hline 1 & \text { Trance Electronics } & & & & & \\\hline 2 & & & & & & \\\hline 3 & \text { Data } & & & & & \\\hline 4 & & & & & & \\\hline 6 & \text { Market size } & 20,000,000 \\\hline 6 & \text { Unit (monthly Rx) revenue } & \$ 120.00 \\\hline 7 & \text { Unit (monthly Rx) cost } & \$ 50.00 \\\hline 8 & \text { Discount rate } & 8 \% \\\hline 9 & & \\\hline 10 & \text { Project costs } & \\\hline 11 & \text { R\&D } & \$ 750,000,000 \\\hline 12 & \text { Clinical Trials } & \$ 100,000,000 \\\hline 13 & \text { Total Project Costs } & \\\hline 14 & & & & & & \\\hline 15 & \text { Model } & & & & & \\\hline 16 & & & & & & \\\hline 17 & \text { Year } & 1 & 2 & 3 & 4 & 5 \\\hline 18 & \text { Market growth factor } & & 4 \% & 4 \% & 4 \% & 4 \%\\\hline 19 & \text { Market size } & & & & & \\\hline 20 & \text { Market share growth rate } & & 18 \% & 18 \% & 18 \% & 18 \% \\\hline 21 & \text { Market share } & 7 \% & & & & \\\hline 22 & \text { Sales } \\\hline 23 & \\\hline 24 & \text { Annual revenue } \\\hline 25 & \text { Annual costs } \\\hline 26 & \text { Profit } \\\hline 27 & \text { Cumulative net profit } \\\hline 28\\\hline 29& \text { Net present value} \\\hline\end{array}$
$\quad$ Suppose that the project manager of Trance Electronics has identified the following uncertain variables in the model and the distributions and parameters that describe them, as follows: Market size: normal with mean of 20,000,000 units and standard deviation of 4,000,000 units. R&D costs: uniform between $600,000,000 and $800,000,000.
Clinical trial costs: lognormal with mean of $150,000,000 and standard deviation $30,000,000. Annual market growth factor: triangular with minimum = 2%, maximum = 6%, and most likely = 3%.
Annual market share growth rate: triangular with minimum = 15%, maximum = 25%, and most likely = 20%.
The number of trials per simulation is equal to 10,000 at a Sim. Random Seed of 2. Run the simulation and answer the following questions using the Analytic Solver Platform.
[Hint: choose the closest value.]
-What is the correlation of the market size with the NPV with reference to the sensitivity chart?

• A) 0.043
• B) 0.888
• C) -0.341
• D) -0.026

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Definitions:

Debt

Debt represents money borrowed that must be repaid, typically with interest, by the borrower to the lender.

CAPM Beta

CAPM Beta is a measure used in the Capital Asset Pricing Model to determine the volatility or systemic risk of an asset in relation to the market as a whole.

Expected Return

Expected return is the predicted amount of profit or loss an investment is anticipated to generate over a specific period.

Coefficient

A coefficient is a numerical or constant quantity placed before and multiplying the variable in an algebraic expression, often representing a measure of some property or effect.